Monday, March 30, 2015

Court of Appeal: No Vested Rights in Post-Retirement Pension Benefit Enhancements

On March 27, 2015, the California Court of Appeal held employees who retired before certain pension benefit enhancements went into effect did not have vested rights to those benefits. The court's decision in Protect Our Benefits v. City and County of San Francisco held retirees' post-retirement benefit enhancements were exposed to legislative impairment.

Beginning in 1996, retired employees of the City and County of San Francisco ("City") received supplemental cost of living allowances ("supplemental COLA") for their pension benefits when the retirement fund's earnings from the previous year exceeded projected earnings. But in November 2011, voters passed an initiative conditioning payment of the supplemental COLA on the retirement fund being "fully funded."

The court held the initiative improperly impaired vested contractual rights for current City employees and those who retired after the 1996 supplemental COLA went into effect. However, the court upheld the November 2011 initiative for City employees who retired before the 1996 supplemental COLA went into effect because they had no vested rights in the supplemental COLA. Vested pension rights are created at the time the employee provides services for the employer. The pre-1996 retirees' vested rights were limited to the pension benefits in effect at retirement, and they had no vested rights in the post-retirement supplemental COLA enhancements.